UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended: SEPTEMBER 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ..................to
...................
Commission File Number: 0-15905
BLUE DOLPHIN ENERGY COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 73-1268729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Eleven Greenway Plaza, Suite 1606, Houston, Texas 77046
(Address of principal executive offices) (Zip Code)
(713)621-3993
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
67,186,971 shares $.01 par value outstanding at October 31,1997
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART. I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of Blue Dolphin
Energy Company and Subsidiaries (the "Company") included herein
have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission
and, in the opinion of management, reflect all adjustments
necessary to present a fair statement of operations, financial
position and cash flows. The Company follows the full cost
method of accounting for oil and gas properties, wherein costs
incurred in the acquisition, exploration and development of oil
and gas reserves are capitalized. The Company believes that the
disclosures are adequate and the information presented is not
misleading, although certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
(Unaudited)
ASSETS
Current Assets:
Cash $ 1,122,782 $ 1,207,323
Trade accounts receivable 1,138,318 744,283
Crude oil inventory 16,860 28,460
Prepaid expenses 101,151 70,340
Total Current Assets 2,379,111 2,050,406
Property and Equipment, at cost, using full cost
method for oil and gas properties. Includes
$884,706 and $1,902,955 of leases held for sale
at September 30, 1997 and December 31, 1996 23,748,565 24,029,957
Accumulated depletion, depreciation
and amortization (4,762,368) (4,535,945)
18,986,197 19,494,012
Land 1,133,333 1,133,333
Other Assets 1,930,035 1,548,860
Total Assets $ 24,428,676 $ 24,226,611
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 629,417 $ 1,094,473
Accrued interest payable 52,979 --
Current portion of accrued abandonment costs 331,000 --
Accrued income taxes payable 77,180 38,820
Total Current Liabilities 1,090,576 1,133,293
Long-Term Debt, less current portion 2,060,600 2,060,600
Accrued Abandonment Costs, less current portion 20,264 798,185
Deferred Income Taxes 976,552 633,956
Common Stock 669,275 667,691
Additional Paid-in Capital 17,018,630 17,007,087
Accumulated Earnings since January 1, 1990 2,592,779 1,925,799
Total Liabilities and
Stockholders' Equity $ 24,428,676 $ 24,226,611
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
Ended September 30
1997 1996
Revenue from operations:
Pipeline operations $ 1,255,628 $ 775,459
Oil and gas sales and operating fees 185,961 181,718
REVENUE FROM OPERATIONS 1,441,589 957,177
Cost of operations:
Pipeline operating expenses 188,220 217,392
Lease operating expenses 162,183 146,359
Repair and maintenance costs 91,889 244,314
Depletion, depreciation, and amortization 90,107 80,830
COST OF OPERATIONS 532,399 688,895
909,190 268,282
Other income (expense):
General and administrative (316,004) (328,510)
Interest expense (54,801) (2,962)
Interest and other income 28,283 35,336
INCOME BEFORE INCOME TAXES 566,668 (27,854)
Provision for income taxes (202,666) 66
NET INCOME (LOSS) 364,002 (27,788)
Dividend requirements on preferred stock -- 72,801
Net income (loss) applicable to common stockholders $ 364,002 $ (100,589)
Net income (loss) per common share $ 0.005 $ (0.002)
Weighted average number of common shares
outstanding 67,850,678 53,027,407
Net income per common share (fully diluted) $ 0.005
Weighted average number of common shares
outstanding (fully diluted) 68,040,189
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Nine Months
Ended September 30,
1997 1996
Revenue from operations:
Pipeline operations $ 3,188,320 $ 2,375,241
Oil and gas sales and operating fees 620,786 707,569
REVENUE FROM OPERATIONS 3,809,106 3,082,810
Cost of operations:
Pipeline operating expenses 606,523 645,110
Lease operating expenses 486,704 485,283
Repair and maintenance costs 310,808 383,836
Depletion, depreciation, and amortization 276,784 326,281
COST OF OPERATIONS 1,680,819 1,840,510
2,128,287 1,242,300
Other income (expense):
General and administrative (983,763) (968,750)
Interest expense (165,731) (16,549)
Interest and other income 76,601 94,153
INCOME BEFORE INCOME TAXES 1,055,394 351,154
Provision for income taxes (388,414) (147,607)
NET INCOME 666,980 203,547
Dividend requirements on preferred stock -- 218,403
Net income (loss) applicable to common stockholders $ 666,980 $ (14,856)
Net income per common share $ 0.01 $ --
Weighted average number of common shares
outstanding 67,652,559 50,007,664
Net income per common share (fully diluted) $ 0.01
Weighted average number of common shares
outstanding (fully diluted) 67,715,729
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Nine Months
Ended September 30,
1997 1996
OPERATING ACTIVITIES
Net income $ 666,980 $ 203,547
Adjustments to reconcile net income to net
cash provided by operating activities:
Depletion, depreciation and amortization 276,784 326,281
Gain on Sale of Property and Equipment -- (4,397)
Deferred income taxes 342,596 104,857
Changes in operating assets and liabilities:
(Increase) Decrease in trade accounts receivable (394,035) 47,896
(Increase) Decrease in crude oil inventory and prepaid expenses (19,211) 43,905
(Decrease) in accounts payable and
other current liabilities (292,717) (895,673)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 580,397 (173,584)
INVESTING ACTIVITIES
Oil and gas prospect generation costs (518,111) (1,497,953)
Proceeds from sales of oil and gas prospects 1,018,289 --
Purchases of property and equipment (208,158) (339,705)
Increase in other assets (50,311) (164,115)
Funds escrowed for abandonment costs (339,999) (326,999)
Abandonment of oil and gas properties (569,147) --
Exploration and development costs (10,627) (111,913)
NET CASH (USED IN)
INVESTING ACTIVITIES (678,064) (2,440,685)
FINANCING ACTIVITIES
Net proceeds from the exercise of warrants -- 1,657,558
Net proceeds from the exercise of stock options 13,126 25,522
NET CASH PROVIDED BY
FINANCING ACTIVITIES 13,126 1,683,080
(DECREASE) IN CASH (84,541) (931,189)
CASH AT BEGINNING OF YEAR 1,207,323 2,748,467
CASH AT SEPTEMBER 30 $ 1,122,782 $ 1,817,278
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ 110,470 $ 16,549
Income taxes paid $ 39,600 $ 46,365
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 1997
EARNINGS PER COMMON SHARE
Fully diluted earnings per share has not been presented for the
three months and six months ended September 30, 1996, because it
is antidilutive.
ACCOUNTING STANDARDS
The Company will implement SFAS No. 128, "Earnings per Share" for
year-end 1997 financial reporting. This standard requires
presentation of both "basic" and, where capital structures are
complex, "diluted" earnings per share disclosure in the statement
of operations. The Company expects that implementation of this
standard will not have a material effect on earnings per share as
currently calculated.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a review of certain aspects of the financial
condition and results of operations of the Company and should be
read in conjunction with the Condensed Consolidated Financial
Statements included in Item 1. of this report.
Certain of the statements included below, including those
regarding future financial performance or results, or that are
not historical facts, are or contain "forward-looking"
information as that term is defined in the Securities Act of
1933, as amended. The words "expect," "believe," "anticipate,"
"project," "estimate," and similar expressions are intended to
identify forward-looking statements. The Company cautions
readers that any such statements are not guarantees of future
performance or events and such statements involve risks,
uncertainties and assumptions, including but not limited to
industry conditions, prices of crude oil and natural gas,
regulatory changes, general economic conditions, interest rates,
competition, and other factors discussed below. Should one or
more of these risks or uncertainties materialize or should the
underlying assumptions prove incorrect, actual results and
outcomes may differ materially from those indicated in the
forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements which speak
only as of the date hereof. The Company undertakes no obligation
to republish revised forward-looking statements to reflect events
or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
FINANCIAL CONDITION
At September 30, 1997, the Company's working capital (current
assets less current liabilities) was $1,288,535, representing an
increase of $371,422 as compared with working capital of
$917,113 at December 31, 1996. The increase in working capital is
principally due to the net effect of the sale of an oil and gas
prospect in the second quarter 1997 for approximately $1,000,000
and offsetting well abandonment costs of approximately $819,000.
Pursuant to the rules of the full cost method of accounting for
oil and gas properties, approximately $900,000 of lease
acquisition costs associated with the Company's oil and gas
prospect generation activities, which costs the Company expects
to recover in late 1997 or early 1998 through sale of prospects,
are excluded from working capital at September 30, 1997.
The Company maintains a $10,000,000 reducing revolving credit
facility with Bank One, Texas, N.A. Effective September 1, 1997,
the borrowing base was adjusted to $900,000, reducing by $90,000
per month beginning October 1, 1997. The borrowing base and
reducing amount are redetermined semi-annually. The maturity
date is January 14, 2000, when the then outstanding principal
balance, if any, is due and payable. The current outstanding
balance under the credit facility is $10,000. The facility is
available for the acquisition of oil and gas reserve based assets
and other working capital needs. The Loan Agreement includes
certain restrictive covenants, including restrictions on the
payment of dividends on capital stock, and the maintenance of
certain financial coverage ratios.
During the nine months ended September 30, 1997, offshore
activity in the vicinity of the Blue Dolphin Pipeline System
remained active. Four additional wells were tied into the
pipeline system, resulting in a 56% increase in daily gas volumes
transported compared to the same period in 1996. An existing
producer/shipper terminated its oil transportation and processing
agreements with the Company effective
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
October 26, 1997. Revenues generated from oil transportation and
processing fees from this producer/shipper represented 25% of the
Company's revenues for the nine months ended September 30, 1997.
The Company expects that certain of its operating costs will be
reduced and/or eliminated as a result of the reduced oil
throughput.
In an ongoing effort to expand the Company's pipeline market area
and to enhance the value of its pipeline system, during 1997 the
Company acquired two 8 inch diameter flowlines, totalling
approximately 16 miles in length. Additionally, the Company has
acquired an out-of-service 12 inch diameter, 18 mile offshore
line. Future utilization of the Company's pipelines and related
facilities will depend upon the success of drilling programs in
and around the Company's pipeline corridors, attraction and
retention to the systems, and execution of contracts with
producer/shippers to transport their gas and oil through the
Company's transportation facilities.
In August 1996, the Minerals Management Service conducted an
annual inspection of the Buccaneer Field production platforms and
facilities. In addition to certain repairs, the Company was
required to remove piping and other equipment that was no longer
in use. The removal and abandonment work, and the repairs to the
platforms were completed in March 1997. For the period ended
September 30, 1997, the Company incurred costs totalling
approximately $112,000 for removal and abandonment work and
approximately $112,000 for repairs to the platforms.
Additionally, a previously inactive well was plugged and
abandoned at a cost of approximately $457,000. Removal of the
associated satellite platform and site clearance is expected to
take place later this year or early in 1998, at an estimated cost
of $250,000.
The Company currently holds interests in two lease blocks
prospective for oil and gas in the High Island Area of the Gulf
of Mexico. The lease blocks were acquired in January 1996.
Approximately $825,000 was invested to acquire the two leases, in
addition to approximately $60,000 associated with technical
development of the prospects. A 43.75% interest in each of these
prospective lease blocks has been sold. Efforts to sell the
remaining 56.25% interest in each lease block are ongoing.
Additionally, the Company has finalized a multi-year agreement
with three independent oil and gas companies, whereby in exchange
for certain participation rights, these companies will partially
fund the costs associated with the Company's ongoing offshore
prospect generation program. The remaining program costs will be
reimbursed to the Company as prospects are developed and leases
acquired. In August 1994, the Company entered into a multi-year
3-D seismic data acquisition and licensing agreement providing
access to over 2,000,000 acres of 3-D seismic data, primarily in
the Western Gulf of Mexico, and over 200,000 line miles of close
grid 2-D seismic data.
Development of the Petroport deepwater terminal and offshore
storage facility continues to proceed as anticipated. Efforts
remain focused on pre-licensing activities and regulatory
matters. Major pre-licensing activities include: development of
support for the project from both Federal and State agencies that
have jurisdiction over or impact deepwater port licensing,
construction and operation; facility commercial profile
development; development of the engineering design and capital
and operating cost estimates; development of the cost estimate
for obtaining the necessary license and permits; and development
of a financing strategy.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
It is currently estimated that pre-licensing costs will total
approximately $1,250,000. Approximately $665,000 has been
committed through September 30, 1997. Total cost of the facility
is currently estimated at approximately $500 million. The
Company expects to submit the Petroport deepwater port license
application and associated permit requests in 1998, with
operations commencing in the year 2001.
The Company believes that it has or can obtain adequate capital
resources to continue to meet its anticipated business
requirements.
RESULTS OF OPERATIONS
Net income applicable to common stockholders for the nine months
ended September 30, 1997, ("current period") increased $672,012
to $661,156 compared to a net loss applicable to common
stockholders of $14,856 reported for the first nine months of
1996 ("previous period").
REVENUES:
Revenues for the current period increased by $726,296 or 24% to
$3,809,106 compared to revenues of $3,082,810 reported for the
previous period.
Revenues from pipeline operations increased by $813,079 or 34%
from the previous period. Gas transportation revenues increased
$607,000, resulting from a 56% increase in gas transportation
volumes due to additional wells tied into the system in late 1996
and 1997. Oil transportation revenues increased $188,000,
resulting from a 14% increase in oil transportation volumes
associated with increased production from an existing
producer/shipper.
Revenues from oil and gas sales and operating fees for the
current period decreased by $86,783 from those of the previous
period. Oil and gas sales decreased $31,000 due to decreased
production volumes. Operating fees declined approximately $27,000
due to termination of production activities by a producer for
whom the Company provided contract operation and maintenance
services and $28,000 due to decreased production volumes from a
second producer for whom the Company provides similar services.
COSTS AND EXPENSES:
Repair and maintenance costs for the current period decreased by
$73,028 due primarily to non-recurring repair costs and expenses
associated with modifications to the Buccaneer Field production
platforms and facilities incurred in 1996.
Depletion, depreciation, and amortization expense for the current
period decreased $49,497 as compared to the previous period, due
to a decrease of approximately $27,000 in amortization as a
result of deferred loan costs being fully amortized during 1996,
and a decrease of approximately $24,000 in depletion, resulting
from decreased oil and gas production volumes.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Interest expense increased $149,182 in the current period as a
result of promissory notes totalling $2,050,600, issued December
31, 1996. The notes are associated with the conversion of the
issued and outstanding preferred stock to common stock.
CAPITALIZATION
On October 29, 1997, the Company announced approval, by majority
consent of Stockholders, of a one-for-fifteen reverse stock
split. The effective date is expected to be on or around
December 8, 1997.
The reverse stock split is intended to help the Company meet the
new minimum bid price requirement of $1.00 imposed by the
National Association of Securities Dealers Automated Quotation
Stock Market ("NASDAQ"), which will be effective February 23,
1998. The Company believes this action, in addition to
supporting continued NASDAQ listing, should enhance the
acceptability of the common stock by the financial community and
investing public and, in general, broaden investor interest in
the Company.
There are currently 67,186,971 shares of common stock issued and
outstanding. After the reverse stock split there will be
approximately 4,479,131 shares of common stock issued and
outstanding.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. The Company's preliminary Information Statement on
Schedule 14C, filed October 29, 1997, regarding the
approval, by majority consent of Stockholders, of a
one-for-fifteen reverse stock split is incorporated
herein by reference.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
A) Exhibits - None
B) Form 8-K - None
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
By: BLUE DOLPHIN ENERGY COMPANY
Date:
/S/ MICHAEL J. JACOBSON
Michael J. Jacobson
President and Chief Executive Officer
/S/ G. BRIAN LLOYD
G. Brian Lloyd
Secretary and Treasurer